Boeing Problems Affect US-China Trade Imbalance
Boeing's current commercial aircraft division problems
have posed a difficulty in US-China trade relations because
China is not able to make a purchase of big-ticket airliners
from the US just while China's air travel demand is growing.
Boeing's problem is that it does not have a replacement
of the 747 jumbo jet, while it's competitor Airbus, will
be launching its newest super-jumbo, the A380 in two years'
time. When Asian countries have run up huge trade deficits
with the US, they have traditionally purchased big-ticket
jumbo jets such as the 747. This has several advantages
for both sides: the Asians are able to show their commitment
to free trade, the US government and Boeing are able to
show the superiority of American products, and all sides
are able to issue press releases about how good free trade
is for everybody. Usually, Asian heads of state would
have some deal-signing ceremony in Seattle or Washington,
D.C., and have large numbers of photographers cover the
event. Since a fully configured 747 would cost approximately
US$200 million, a major purchase would put a significant
dent in the trade imbalance.
This has all changed in the past few years with Boeing's
increased reliance on US government military contracts,
and fudging on a replacement for the 747. While Boeing
has a strong product line in short and medium haul jets
with the 737, 757 and 767, all are old. The production
lines for the 757 and 767 are expected to close soon.
The only newer jet has been the long-haul twin engine
777. Boeing has a new jet which is in the advanced development
stage called the 7E7, but it isn't a jumbo jet. When it
comes to shear glamor for Asian airlines, nothing compares
with the jumbo class dominated by the 747, and shortly
by the A380.
For Asian national airlines, flying new jets is very
important for their marketing departments. With 120 orders,
the A380 will be the newest jet in the super-jumbo class,
and it is likely that its introduction will significantly
cut into orders for the 747 in Asia. Already, Asian airlines
are taking a wait and see attitude when it comes to jumbo
jet purchases. Since jet delivery times take from 2-5
years, nobody wants to make a commitment to a jet model
which may be deemed obsolete by the time it takes delivery.
For the next 30 years, the China market for air travel
is expected to be the fastest growing in the world. In
particular, the number of outbound Chinese tourists is
expected to grow significantly with the need for direct
flights from China to North America and Europe. Right
now, Boeing does not have a commercial jet to serve that
need, while Airbus does.
For the US and Chinese governments, Boeing's problems
have made it more difficult to solve trade deficit issues.
And if the testing and launch of the A380 go well, the
two countries will have one less big-ticket product to
help them address their trade problems.
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